Europe’s leaders need spine: Swan

Treasurer
Wayne Swan
has issued a blistering condemnation of Europe’s handling of the region’s sovereign debt crisis and demanded its leaders show political courage by doing more to build a stronger fiscal union.

In a speech to be delivered in Sydney before next week’s G20 leaders’ summit in Mexico, he says Europe’s policymakers “are still well behind the curve, having failed to take advantage of the months of relative calm".

The remarks, three days before the Greek election, highlight the government’s frustration with Europe after weeks of escalating market turmoil were fuelled by fears that the region’s crisis could trigger another global economic crunch.

“The simple fact is that European policymakers have a lot more heavy lifting to do – put simply, what is required is some basic political courage," Mr Swan will tell a bond market forum in Sydney .

In the speech, he says European economies must act now to boost growth and job creation, before returning their budgets to a more sustainable footing. But first, the continent’s leaders “must accelerate their transition towards greater fiscal and financial union, to strengthen the monetary union".

The issue of a fiscal union is at the heart of an increasingly urgent debate about the future of the euro zone.

The 27 European Union heads of state will meet later this month to discuss deeper economic integration, including measures that would increase the influence of Brussels on state budgets and nations facing financial turmoil.

“Leaders are elected to lead, and that’s what Europe’s leaders must do," Mr Swan says in his speech. He contrasts Europe with Australia, which has had a “proud history of muscling-up to deliver hard-fought, politically unpopular reforms".

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“Australia’s model for economic prosperity has shown that you can balance fiscal responsibility with growth," Mr Swan says. “The world is looking to Europe to do the same."

The Reserve Bank of Australia cut official interest rates by 0.25 of a percentage point this month, taking the total cuts since November to 1.25 percentage points. It cited a deteriorating Europe as a concern.

Reserve Bank board member Heather Ridout described the outlook for Europe as “very troubling" and said it was having an impact on business and consumer confidence.

NAB’s gauge of business conditions in May slid from zero to minus 4, the worst reading in three years, and the Westpac-Melbourne Institute consumer sentiment index rose 0.3 percentage point in June.

The NAB survey implied gross domestic product growth would slow to about 2 per cent, from the first quarter’s surprise 4.3 per cent surge

“It’s a general part of the very troubling and uncertain global environment. I think that it infuses business’s views of the world; it undoubtedly infuses consumers . . . too,’’ she told The Australian Financial Review.

“But I think Australia is very fortunate, we have issues but we are growing. We have a bit of debt but we are growing so we can pay it off."

Mr Swan’s speech, to the Euro­money Australasian and Asian covered bond forum, emphasises the relative strength of the Australian economy and reiterates the government’s drive to return the budget to surplus.

“There is absolutely no doubt that we face continuing global economic volatility from a position of strength," he says. “And just like the government’s balance sheet is strong and getting stronger, we must continue our agenda to strengthen the nation’s balance sheet."

He welcomes recent issuance by banks of covered bonds, which the government made possible for the first time last year, and says he is looking forward to the day when credit unions and building societies sell the securities.